Time New York: Mon 23 Apr 05:31 am  |  Save 15% on H&R Block Online

  
caticonslite_bm_alt

5 Great Basic Materials Stocks to Buy Ahead of Q1 Earnings

Zacks

A sustained period of low growth and low inflation has ensured that basic materials stocks have been out of favor for quite some time now. Their capital intensive nature made them unsuitable investment choices in such an environment. But these out of fashion picks recently made a comeback after Trump announced tariffs on steel and aluminum imports, potentially skewing the pitch in favor of domestic producers.

Currently, multiple factors are working in the sector’s favor, boosting its investment worthiness in the short run. Prospects of a sustained period of growth and a pickup in inflation are likely to brighten the prospects of basic materials companies. Further, earnings and revenues from the sector are likely to improve in the first quarter, which makes it a good idea to pick up select basic materials stocks which are also likely to outperform their earnings estimates.

Inflation Pickup, Trump’s Actions Boosting Sector Prospects

Inflation fears had caught investors unaware earlier this year, leading to heavy losses for markets in early February. Such fears have receded somewhat at present. But sustained wage increases over recent months mean that inflation is likely to tick higher in the near term. In March, average hourly earnings registered a year-over-year increase of 2.7%, higher than the 2.6% recorded in February.


Further, Trump’s $1.5 trillion infrastructure plan boosted the price of industrial metals substantially last year. With the White House firm on pushing ahead with this plan, basic materials prices are likely to receive a further fillip. Also, while Trump’s tax cuts are likely to boost U.S. Inc. as a whole, his decision to impose tariffs on steel and aluminum are, at the very least, likely to provide a short-term boost to basic materials.

Earnings Prospects Remain Strong

During the fourth-quarter, earnings and revenue growth for basic materials was second only to the energy sector. Total Q4 earnings were up +45.2% on +21.3% higher revenues. This trend is likely to continue during the upcoming earnings season. Total Q1 earnings for the sector are expected to be up +41.4% on +20.2% higher revenues. This is second only to expectations for energy, total Q1 earnings for which are expected to be up 60.3% on 15.6% higher revenues.

That’s far better than the more vaunted autos and conglomerate sectors, earnings for which are expected to decline by -9.3% and -9.8%, respectively during the first quarter. Overall, total Q1 earnings are expected to be up +17.9% from the same period last year on +5.3% higher revenues. (Read: Bank Earnings Finally Taking Off)

Our Choices

After remaining out of favor for quite some time, basic materials stocks are making something of a comeback. Prospects for growth, stronger inflation and Trump’s policies have boosted sector prospects significantly. Meanwhile, in keeping with stellar fourth-quarter results, first-quarter numbers are likely to be impressive.

Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

You could further narrow down the list of choices by looking at stocks that have a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.

Allegheny Technologies Inc. ATI is a diversified specialty materials producer.

Allegheny Technologies has beaten the Zacks Consensus earnings estimate for the last four consecutive quarters with an average positive earnings surprise of 41.7%.

Powered with the right combination of the two key ingredients – an Earnings ESP of +5% and a Zacks Rank of 1 – our proven model shows that an earnings beat is expected for Allegheny Technologies in the to-be-reported quarter as well.

The company is expected to report first-quarter 2018 results on Apr 24.

WestRock Company WRK aspires to be the premier partner and unrivaled provider of paper and packaging solutions in consumer and corrugated markets.

WestRock has beaten the Zacks Consensus earnings estimate for the last four consecutive quarters with an average positive earnings surprise of 13.5%.

Powered with the right combination of the two key ingredients – an Earnings ESP of +4.57% and a Zacks Rank of 1 – our proven model shows that an earnings beat is expected for WestRock in the to-be-reported quarter as well.

The company is expected to report second-quarter fiscal 2018 results on Apr 27.

Huntsman Corporation HUN is among the world's largest global manufacturers of differentiated and commodity chemical products for a variety of industrial and consumer applications.

Huntsman has beaten the Zacks Consensus earnings estimate for the last four consecutive quarters with an average positive earnings surprise of 31.5%.

Powered with the right combination of the two key ingredients – an Earnings ESP of +0.45% and a Zacks Rank of 2 – our proven model shows that an earnings beat is expected for Huntsman in the to-be-reported quarter as well.

The company is expected to report first-quarter 2018 results on Apr 25.

The Chemours Company CC is a provider of performance chemicals on a global scale.

Chemours has beaten the Zacks Consensus earnings estimate for the last four consecutive quarters with an average positive earnings surprise of 21.5%.

Powered with the right combination of the two key ingredients – an Earnings ESP of +2.72% and a Zacks Rank of 2 – our proven model shows that an earnings beat is expected for Chemours in the to-be-reported quarter as well.

The company is expected to report first-quarter 2018 results on May 3.

Quaker Chemical Corporation KWR develops, produces and markets a range of formulated chemical specialty products for various heavy industrial and manufacturing applications.

Quaker Chemical has beaten the Zacks Consensus earnings estimate for the last four consecutive quarters with an average positive earnings surprise of 4.5%.

Powered with the right combination of the two key ingredients – an Earnings ESP of +7.63% and a Zacks Rank of 2 – our proven model shows that an earnings beat is expected for Quaker Chemical in the to-be-reported quarter as well.

The company is expected to report first-quarter 2017 results on May 7.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.

Zacks Investment Research
<-- You can share this post with your network,
or give us your opinion and leave a comment.
Be sure to check our RSS feeds for updates.